Innovation Policy

Concept and benefits of innovation

In the context of private sector development, “innovation is understood as
the commercially successful introduction or implementation of a technical or organisational
innovation.” It can be the result of the development of new products or processes,
or improvements of existing ones. It also includes the adaptation and introduction
of products and processes to new markets (BMZ
Working Group on ‘Promoting Innovation Systems’).

Innovative products and processes are crucial for increasing the competitiveness,
growth and employment generation of individual enterprises and developing economies
as a whole. They also have the potential to address specific needs of poor producers
and consumers, such as affordable, pro-poor technologies or agricultural innovations.

The Economist’s Schumpeter blog
argues that imitation is as important as innovation, as it is widespread and offers
significant benefits, such as cheaper research and development and less risk of
products failing market testing.
Ben Ramalingam responds, though, that imitation is not always easy, and
may involve innovative adapting of the original product, and that innovators are
still needed in an economic eco-system for imitators to copy from.

An interesting reflection on the use of the term innovation in the donor community
is offered by David Lewis on the Guardian Poverty Matters Blog: In his post "Is
innovation really essential for development work?" he cautions against an
excessive and undifferentiated use of the term. Using the term without a clear meaning
should be avoided. Donors should also recognise that not everything can, or should
be innovative, as it is a distinctive, risky and often costly activity. Further,
he notes that the pressure to innovate may be inefficient and risks reinventing
the wheel where effective solutions may already be in place. Innovation should never
be seen as an end in itself, but as a tool.

Constraints to innovation in developing countries

Whether an entrepreneur will engage in technical innovation depends partly on the
incentives provided by the size and functioning of the market. In developing countries,
markets are often small, fragmented and imperfect due to lack of infrastructure,
low per capita incomes, as well as misguided policies and institutional constraints,
which provide little incentive for innovative activity. (Szirmai,
Naudé 2011). Other major constraints to innovation include limited
access to finance, a lack of market information, and skills shortages among entrepreneurs.
Among smaller businesses in particular, and in some cultural contexts, there may
also be only little awareness about the long-term benefits of innovation, or there
may be a general lack of appreciation for innovative activities.

Contents

This page contains useful information and resources on Innovation Policy under the
following groupings:

Click on an entry below to access a website or document. Suggestions for additions
to this page are welcome at any time.
Click here to contact the DCED Secretariat.

Donor approaches to innovation promotion

Donor programmes follow different approaches to promote innovation in developing
countries. An overarching framework for innovation policy is the innovation system.
Innovation systems refer to the interaction between companies, research organisations
and the state in the creation, diffusion and use of innovations (Science
and Development Network). Donor support to innovation systems spans a broad
range of activities, including the creation of appropriate framework conditions
for innovation, and the development of innovative capacities of companies.

Donors aim to create enabling environments for innovation by advising governments
on property rights, cutting red tape, improving access to finance, or tax incentives.
They can also help improve the conditions for innovation by funding university facilities
and equipment, or training of academic staff.

More targeted approaches may vary for different types of firms (e.g.
World Bank 2004). For very small enterprises, donor support may focus on
basic business advisory and support services, finance and skills development and
providing access to information and communication technologies (ICTs). It may also
include awareness-building about the benefits of innovation or information on the
adoption and application of new technologies (UNIDO
2003).

For technologically competent enterprises, examples of donor support are the establishment
of business incubators to facilitate new business start-ups, technology extension
services to expose enterprises to new technologies, and technical assistance to
the commercialization, licensing and patenting of products.

With growing innovative capabilities of businesses, the transfer and diffusion of
new technologies from larger (often multinational) to smaller companies also becomes
an important aspect of innovation policy. Common ways to promote linkages between
firms are value chain and cluster approaches: Supplier and subcontracting relationships
can be instrumental in helping smaller firms access markets and technology of larger
enterprises; in addition, being part of a cluster can help small firms to specialise,
absorb new technologies and procure their inputs.